Chevron Strikes Back

by Julian Ku

Chevron strikes back, and the pro-Ecuador NGOs are not happy about it.

WASHINGTON, Feb. 17, 2012 /PRNewswire via COMTEX/ — An “order” issued Thursday from a private investor arbitration panel purporting to freeze a nine-year environmental litigation against Chevron in Ecuador violates international law and will have little or no impact on any potential enforcement action against the oil giant in countries around the world, said representatives of the plaintiffs.

The latest move by the three-person investor arbitration panel, issued after a secret, closed-door hearing over the weekend that barred the rainforest communities of Ecuador from appearing, ordered Ecuador’s government to take “all necessary steps” to block enforcement of an $18 billion judgment against Chevron that was affirmed on appeal in early January following a nine-year civil trial, according to a source in the American law firm Winston & Strawn, which represents Ecuador’s government.

Interestingly, advocates seem to be demanding that Ecuador follow its own constitution instead of its obligations under international law. They declare that the tribunal’s award “violates” international law, but what does that mean? The Tribunal was improperly constituted? I think this next argument reflects their real thinking on this question.

“This arbitration panel has just lost the last remnants of its legitimacy by trying to order a sovereign nation to violate its own Constitution and quash the legal claims of citizens who are literally dying off in the rainforest due to Chevron’s pollution,” said Karen Hinton, the U.S. spokesperson for the 30,000 Ecuadorians who won the judgment against the oil giant.

I realize these NGOs are concerned with policy not law, but I wonder how many defenders of Ecuador will make similar “sovereigntist” arguments?

Below is a quote from a number of international law professors summing up the potential implications of the ruling. http://chevrontoxico.com/assets/docs/2012-02-08-letter-to-sorieul.pdf
“We are writing to you to express our concern about the potential risks arising from such Interim Award, which distorts the international investment treaty system to the point where it loses its credibility and effectiveness in promoting investment and resolving claims between States and their investors. Allowing BIT panels to determine recognition and enforcement issues in private litigation transforms them into venues of final appeal in a way that was never intended and offends the inherent trustworthiness of legal systems around the world to determine matters for themselves. BIT panel awards ordering States to interfere in private judicial proceedings between different parties is a direct violation of well settled principles of sovereignty and, in this particular case, human rights under international law.”

2.18.2012
at 12:00 am EST Brian

The tribunal’s interim award is available here. What the tribunal has done is standard practice for international tribunals under the laws of state responsibility. It assumes a unitary state that imposes obligations on the state itself for all actions of the government, including the judicial and political branches.

Roger Alford

2.18.2012
at 3:14 pm EST Roger Alford

This tribunal order is what might be called a fairly classic “standstill” order trying to hold the status quo pending the final award of the arbitrators.
The arbitration panel’s jurisdiction and legitimacy is derived from the agreement to arbitrate to which the parties have consented.
The interesting question is the apparent difference of parties between those in the arbitration proceeding and those subject to the $18 Billion court judgment.
Assuming the 30 000 Ecuadorians dying are the parties in the private proceeding in Ecuador, one can expect them to try to move forward with the payment of the judgment against Chevron – in Ecuador or anywhere else in the world.
Chevron will present the second interim award to the Ecuadorian court or any other court in the world to try to stay the proceedings before the court and the court will have to decide whether to recognize and enforce the arbitral award and stay proceedings on the enforcement of the judgment.
The Ecuadorian government will debate on how to intervene in such a case. It seems that they would say that they respect the court’s judgment and the second interim award leaving the issue in the hands of the court involved. Of course the Ecuadorian government might also stand with Chevron to resist the judgment (after all an earlier version allowed Chevron’s antecedent Texaco in there – sure lots of politics in this space).
With people dying in Ecuador and the risk of being out $18 Billion for Chevron, there seem to be some pretty irreparable and substantial harms that operate on both sides here. I am sure there are public policies that would speak to enforcing the judgment and also recognizing and enforcing the second interim award in each country that is confronted with these two irresistible forces. Which will be higher in the hierarchy of concerns of each country’s court that might be faced with this conundrum is going to be interesting.
Capital exporting country courts might be more sympathetic to Chevron. Capital importing country courts might be more sympathetic to the 30 000 dying Ecuadorians. Countries that are more sympathetic to recognizing and enforcing arbitral awards as opposed to recognizing and enforcing foreign judgments will be more likely to abide by the second interim award.
This preference for arbitral awards is a further bet that Chevron seems to be making here. The first bet was to have the case moved out of the US second circuit to Ecuador on the forum non conveniens stuff given the propensity of US courts to go that way. The second is to fight the recognition and enforcement of such a foreign judgment in the US as the standard for such recogniztion and enforcement of a foreign judgment is higher than for sending someone to the foreign court for the proceeding in the first place.
This case is the lawyers full employment act for the Chevron lawyers and on the other side I am certain it is equally sucking up resources.
I hope that there is someone in the background suggesting to all parties mediation (by Sec Gen Ban Ki Moon for example) as a way of seeing the interests of each side and possibly coming to a solution.
But maybe there is a deep interest in having judgments and awards in this case on the various sides that is seen to have a value on its own.
I suspect that the non-financial aspects of this case (people dying in Ecuador) will in time militate for Chevron to lose a substantial part if not all – the bodies keep piling up. Of course, then, Chevron will declare bankruptcy to try to get out of the burden. I am sure they have a team of lawyers already preparing for that. Seen it before done in other circumstances.
It’s a cold cold heartless business all this. Scrooge would be proud.
Best,
Ben

2.18.2012
at 5:40 pm EST Benjamin G Davis

I should add for full disclosure that Horacio Grigera Naon and Johnny Veeder (coarbitrator and President of the arbitral panel) are old colleagues and friends from my days at the ICC but I do not think that is affecting my thoughts on this case.
Best,
Ben

2.18.2012
at 5:48 pm EST Benjamin G Davis

Apologies in advance for the crude term, but has anyone heard estimates as to the “body count”? I’m sure the range is massive. Are we talking dozens, hundreds, thousands?

Thank you for the informed conversation on this topic. A couple observations to share from Chevron:

1. On the question of “body count,” it’s notable that the plaintiffs’ representatives have provided absolutely no evidence to support their assertion. Not a single diagnosis. Not a single death certificate. Only unfounded allegations and the occasional soundbite.
2. When the assertions of cancer and other illnesses was put to the test outside of Ecuador, a federal court in San Francisco sanctioned one of the plaintiffs’ former lawyers’ after it was demonstrated that his clients’ claims had been fabricated. The district court found that claims had been “manufactured” by the lawyer “for reasons other than to seek a recovery on the plaintiffs’ behalf.” The court also observed that the lawyers’ lawsuit was “likely a smaller piece of some large scheme against [Chevron].”
3. In proceedings unrelated to the case in San Francisco, eight federal courts have found that the plaintiffs’ representatives have engaged in fraud. For instance, a Federal Magistrate Judge in North Carolina wrote, “While this court is unfamiliar with the practices of the Ecuadorian judicial system, the court must believe that the concept of fraud is universal, and that what has blatantly occurred in this matter would in fact be considered fraud by any court. If such conduct does not amount to fraud in a particular country, then that country has larger problems than an oil spill.”

Simply some additional perspective that might help guide future conversations on this matter.

Kevin, thank you for pointing out the problem with the link. The sanctions orer can be found here. The Court’s decision dismissing the “knowingly false” health claims can be found here. Finally, a summary of the eight fraud findings can be accessed here.

Many of the fraud findings are based on the plaintiffs’ lawyers’ own documents revealing that they secretly wrote a report by a purportedly “independent” court expert upon which the Lago Agrio judgment is based. The plaintiffs’ lawyers then ghostwrote the judgment itself, all the while admitting internally that the evidence did not support their allegations and that they could “all go to jail” if their wrongdoing was revealed. The plaintiffs’ lawyers have never provided an explanation as to how their internal work product found its way into the Lago Agrio judgment.

All this begs an obvious question — If there was any merit to their case, why would the plaintiffs’ lawyers engage in fraud?

Does the letter Brian references make any actual legal arguments? The only complaints listed appear to be without citation and entirely result-oriented.
Personally, I’d be surprised if Ecuador doesn’t end up paying Chevron substantial damages by the time this is all over. At the very least, it looks like several of Ecuador’s legal council are going to face eventual criminal prosecution.
I’m still stunned they were dumb enough to let that guy film it. It boggles the mind.

2.22.2012
at 11:43 pm EST M. Gross

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